Despite the difficulties placed on activity in capital markets by the ongoing pandemic, activity in the Private Rented Sector (PRS) continued throughout 2020 and into the first quarter of 2021.
In total €344.7m transacted across 15 deals in the opening three months of the year. This compares to €100.5m in the comparable period in 2020.
The majority of larger ticket items continue to be dominated by forward commit transactions, a trend which has grown over the past two years. With market players seeking scale, this is set to continue to be a feature throughout 2021.
Over 500 residential units have traded via these forward deals in the opening quarter of 2021, following some 1,800+ units in 2020.
This is over 2,300 units which would not have been delivered to the market without the presence of this capital investment.
However, the closure of construction sites for a large part of quarter one is going to impact the timeline delivery of these units.
Overall, the residential sector has transformed from a niche sector into one of the core investment asset classes, with capital inflow to both standing stock and forward commits being broadly in line with inflows into the office sector.
As investment in this asset class has increased, so too has the pool of real estate investors acting in the PRS market.
Early years saw IRES REIT, Patrizia, Kennedy Wilson and Marathon account for the lion shares of activity.
Over the past five years, as the market has evolved so too has the list of purchasers which now include ILIM, Angelo Gordon, DWS, Starwood, Greystar, GIC, Roundhill Capital and most recently Union Investment to name a few of the most active newer entrants.
Residential Rental Growth
Against a backdrop of strong demand, tight supply and a buoyant economy, strong rental growth at both a national and regional level has been recorded over the past number of years.
Rental growth was particularly strong from 2014 to 2018, with elevated levels also recorded in 2019.
Since the onset of the COVID-19 pandemic, the quarterly path of rental growth has been a bit more volatile.
Q2 2020, recorded a quarterly decline of -0.4%, with stronger declines noted in Dublin and the GDA.
A strong bounce back was recorded in the third quarter, while the final quarter recorded 0% growth at a national level, whilst recording increases in the GDA excluding Dublin and decreases elsewhere.
On an annual basis, nationally, rents increased 2.7% in Q4 2020. In Dublin, rental growth was weaker at 2.1%. Outside of Dublin shows stronger annual increases, with 5.0% in the GDA (excluding Dublin), and 3.4% outside the GDA.
Availability levels within the Dublin residential rental market are very difficult to capture in a truly accurate form.
A spot check of the number of residential rental advertisements on Daft.ie over the past 12 months indicates after an initial reactionary phase, which saw availability rise from March to July 2020. Advertised availability has since stabilised with some declines evident also in more recent months.
A breakdown of the type of units available within most recent spot checks for Dublin, reveals the majority of units are 2 bed properties, approximately two fifths, while 1 bed properties account for a further almost 30%.
Apartments account for the majority of availability within Dublin, leading the drive towards 1 and 2 bed properties.
On the housing side, 3 beds are the most prominent property size available, with 2 and 4 bed availability being closely aligned to each other.
Lastly, outside of Dublin, the dominance of apartments in the availability wanes considerably, which is not unexpected.
Residential Development Pipeline
From a development perspective, COVID-19 impacted construction in 2020.
However, the second half of the year saw completion levels recover, with the largest improvement recorded for apartments.
The number of apartments completed rose from 1,184 in Q4 2019 to 1,724 in Q1 2021.
Despite the impact of COVID-19, there has still been an increase of apartment completions for the whole of 2020, rising 14.5% to 4,014 from the 3,507 completions in 2019.
Although not all apartments will enter the PRS market, the completion figures still provide a good indication of the new stock coming to the market.
Dublin accounts for the largest proportion of this, 2,985 apartments, while within the four local authorities, Dublin City absorbs the most.
However, the opening months of 2021 saw the construction sector close once again. This closure led to a significant fall in the volume of commencements.
In total just 1,530 residential units commenced construction, across houses and apartments, in the opening two months of the year. This compares to 4,470 in the same period in 2020.
February marked the lowest monthly level of units commencing construction since 2016.
In Dublin, the figure is even more stark, as just 142 units commenced during January and February, a 94% decline on the same period in 2020.
Looking to planning permissions, a total of 26,224 apartments were granted planning in 2020.
However, it is not reported what volume of these will be for rent or for sale.
An internal analysis by Cushman & Wakefield’s Capital Markets team of PRS/BTR units suggests under 10,000 apartments are under construction as of May 2021 in Dublin. The majority of these are due to be delivered in 2022.
PRS Market Outlook
Overall, investment volumes into PRS in Ireland are set to continue to grow, as capital flow into residential rises not only in Ireland but across Europe.
Despite recent political and public debates as to the role that this investment has to play, it is clear that the PRS market can continue to provide further high-density units through forward commit and forward fund style transactions.
With a substantial volume of these transactions having the potential to trade on and off market this year, residential transactions volumes should continue to perform strongly, surpassing 2020 levels.
For more detail on the outlook and to view all the data download the full report.